Other major takeaways in the 54-page report include the strong cross-border investment in the United States real estate market, which helped capitalization rates decline across property types, and the prediction of the medical office building market as a “breakout investment class in 2016.”

The report is an annual compendium of real estate valuation, investment, and leasing trends and projections. It provides data, analysis, and forecasts on local and national CRE market conditions for capital markets, office, multifamily, retail, industrial, hospitality, self-storage, senior housing, medical office buildings and auto dealerships.

The firm, which is the largest independent commercial real estate market research, valuation and consulting firm in North America, is bullish on the U.S. real estate sector for 2016. Apparently so are foreign investors who “continue plowing money into U.S. real estate as a safe haven amid global uncertainty,” according to the report. It states that cross-border investment remains robust, noting it is double the levels of 2005.

Anthony M. Graziano, senior managing director in IRR’s Miami/Palm Beach office in Florida, told CPE one of the things that surprised him the most in the report was the “decline in cap rates across the board, which we really didn’t expect.”

Graziano said they had expected cap rates to “normalize” in 2015 but the “tremendous amount of foreign capital” that came into the U.S. real estate market helped drive the cap rates down.

Despite concerns about the Federal Reserve considering more interest rate hikes and uncertainty in global markets like China, the U.S. commercial real estate market is still expected to “maintain greater than fair share of foreign capital investment allocations throughout the year,” according to the report.

IRR is predicting the medical office building will have a big year as the uncertainty over impacts from the Affordable Care Act stabilizes, Graziano said.

“We are seeing a big appetite for net lease investors and major institutional investors in the medical office space,” particularly for MOB campuses around major hospital systems, he said.

The report notes that the “MOB investment class is currently benefiting from high occupancy and low cap rates.” Increased asset values “fueled by this combination of factors, in addition to the availability of low interest rate debt capital, are driving investor appetites and strong sales volumes.” The sector saw sales volumes increase 44 percent from 3Q 2014 to $12.3 billion in 2015.

Another sector IRR projects to have a strong year in 2016 is multifamily, which saw 2015 starts jump 29 percent from 2014 compared to single-family starts that rose 6.7 percent during the same time.

“It’s difficult not to be bullish on the U.S. multifamily sector heading into 2016,” the report stated. “For one thing, strong hiring numbers in 2015 provided significant momentum for the U.S. economy, and especially, demand for multifamily.”

Vacancy rates hit 14-year lows while absorption increased. Steady demand, particularly from millennials who prefer to rent, should maintain current vacancy levels in most markets. Statistics show 93 percent of U.S. multifamily markets are currently in expansion phase with urban Class A markets showing the most stability. IRR said multifamily transaction volume jumped 19.4 percent year over year in 2015 to $130.7 billion. The top five markets for transactions were Palm Beach and Broward counties in Florida, Minneapolis, St. Louis and San Francisco. The data also showed that 88.7 percent of markets expect values to increase over the next 12 months with the exception of markets affected by oil price drops like Houston.

Graziano said some of the effects on Houston could be temporary but concerns over CRE impacts, which had been more of a perception problem in 2015, “will probably become more reality in 2016.” He stressed long-term energy infrastructure projects around the U.S. and local office construction projects are likely to continue.

U.S. office markets also saw increased demand and investor confidence remains high. Transactional activity was up 16.2 percent year over year through the third quarter of 2015, reaching $145 billion. Regionally, the East had 36.5 percent of the national transactional volume, followed by the West (32.3 percent), South (20.1 percent) and Central (11.2 percent). The IRR report noted Manhattan transactional activity was more than three times Chicago, which had $8.4 billion in activity in 2015. Rounding out the top fire were San Francisco, Los Angeles and Boston.

The IRR report notes that retail “remains an opportunity investment as recovery in rents and occupancies have been more measured, though steadily improving.” The strong housing growth and improvement in consumer confidence should help retail in 2016, except in markets that rely heavily on international tourists.

A downturn in inbound international tourism may affect some coastal markets in the hospitality industry, which IRR says faces “the biggest risks in 2016.” The good news is that it is in the midst of a six-year double-digit bottom line gain and the improving economy has meant more business and leisure travelers. “The sector demand probably stays the same or improves slightly,” Graziano told CPE.

While there may be some concerns for the industrial market globally, in the U.S. the primary logistic distribution hubs are expected to perform well with the increase in retail distribution activity. The transaction volume in the industrial sector increased from $21 billion in 2010 to $48.5 billion in 2014. As of the third quarter of 2015, transaction activity was at $66 billion, a 41.5 percent increase over the same period in 2014. The most active market was Los Angeles, which experienced 84.5 percent growth in transaction activity, followed by Chicago, Dallas, California’s Inland Empire and Northern New Jersey. The report states more than 70 percent of the South and West markets experienced cap rate decreases within the last 12 months.